Nigeria Bourse Wants More of $22 Billion Pension Market

The Nigerian Stock Exchange is seeking to have rules on pension-fund investing relaxed to attract funds and boost Africa’s third-best performing gauge this year, Chief Executive Officer Oscar Onyema said.

Nigeria has more than 3.5 trillion naira ($22 billion) in invested retirement savings, according to the National Pension Commission, known as Pencom. Investors should be able to put that money into companies with at least three years of financial statements, less than the five required now, he said in an interview in the commercial capital, Lagos, on Oct. 23.

“Most of Pencom’s regulations are designed to protect investors, but investors are becoming more sophisticated,” Onyema said. “We are working very closely with them, the National Assembly, and other appropriate bodies to highlight areas where we believe there is a need for enhancement.”

Onyema wants reforms to boost stocks, which have led the market’s all-share index 32 percent higher this year, and bolster an economy set to expand 6.2 percent this year and 7.4 percent in 2014, according to the International Monetary Fund. Nigeria is Africa’s biggest oil producer and most populous country, with about 160 million residents.

South Africa’s pension assets were worth about 3 trillion rand ($307 billion) by the second quarter, according to Bloomberg calculations made using Reserve Bank data, while the Johannesburg Stock Exchange’s all-share index gained 15 percent this year. Ghana, which ended the state pension fund’s monopoly on retirement savings, had assets of 1.06 billion cedis ($484 million) last year, according to the country’s pensions regulator. Ghana’s Composite Index is Africa’s best performer this year, jumping 75 percent.

Bonus Shares

The exchange is targeting a market capitalization of $1 trillion by 2016 from its current $74 billion, Africa’s biggest after Johannesburg. The Nigerian gauge is still down 43 percent from a March 2008 record, tumbling after a debt crisis caused by investors borrowing to buy stocks before prices crashed.

“Unless the market depth or more quality stocks listed improves, more pension funds going into the equity market will just drive up valuations across the board, especially in blue-chip names which tend to represent core holdings of long-term focused fund managers,” Olubunmi Asaolu, an analyst at Lagos-based FBN Capital Ltd., said today in an e-mailed response to questions. The 193-member All Share Index fell 0.5 percent to 37,434.90 by the close in Lagos.

Bonus Shares

Pension funds are only able to invest in listed companies which have paid dividends or issued bonus shares for at least one year out of the five they have financial statements for, according to Pencom’s website.

“We don’t even look at dividends in our listing standards,” Onyema said. “What we look at is profitability and market capitalization.”

The commission increased the equities investment limit for pension funds to 50 percent from 25 percent in November 2012 to help boost trading. Pencom wanted to increase “investment in equities and other outlets but with due attention to returns and safety,” Ehimeme Ohioma, head of investment supervision, said on Nov. 15. Two calls to Emeka Onuoara, spokesman for Abuja-based Pencom, didn’t connect yesterday.

The stock exchange is bidding to attract investment from the growing energy industry following moves by the government to sell stakes in power production and transmission companies.

Power Cuts

“We think that, with time, they will at one point or another come to the market to help to finance their massive capital needs,” Onyema said. Nigerian President Goodluck Jonathan handed control of 14 power plants to buyers on Sept. 30 to end frequent power cuts and help boost the economy.

Many of the plants need spending on infrastructure. Transnational Corp. of Nigeria Plc, which invests in hotels, agriculture and energy, raised money for its purchase of the Ughelli power plant through a rights offer this year, part of a plan to source 15 billion naira. Transcorp’s shares rallied 89 percent this year.

Nigeria has a lone exchange-traded fund, NewGold Issuer Ltd., and a target to list five more by the end of the year may not be attained because of the time it takes to register, Onyema said.

“We are pushing hard and trying to support them as much as possible to see if we can actually get at least one or two through the system before the end of the year,” he said.

The bourse is working to develop a ranking system on governance to improve transparency, Onyema said. The initiative, which started with 10 companies, will lead to the creation of a corporate governance index. Nigeria ranks 139th out of 174 in Transparency International’s Corruption Perceptions Index, where lower scores signal increased graft.

“Next year, if everything goes well, we’ll extend it to the entire list of companies,” Onyema said.

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